A central focus of monetary policy is the underlying rate of inflation that might be expected to prevail over a horizon of one or two years. Because inflation is estimated from noisy data, the estimation of this underlying rate of inflation, which we refer to as trend inflation, requires statistical methods to extract the inflation “signal” from the noise. The task of measuring trend inflation is further complicated by the large seasonal fluctuations in many prices, so that attempts to estimate core or trend inflation at a frequency higher than annual must additionally either use seasonally adjusted data or undertake seasonal adjustment as part of the effort to measure trend inflation.

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